Government a Health Hazard?

About the Author

Washington likes to style itself as the center of the political
universe, but this summer, the real action is in the states. At
town-hall meetings, voters are giving their elected representatives
plenty to think about.

Many lawmakers and the Obama administration have made it clear
they want to pass massive health care legislation that includes a
contentious option for a government-run health insurance plan.

Americans are smart to be nervous. This attempt for the
government to enter the insurance market directly to "keep
insurance companies honest" and "increase competition" may sound
benign. It's not. It will erode competition and change how anyone
with some form of health insurance gets and pays for health care
services.

If, for example, Congress passed and the president signed
America's Affordable Health Choices Act of 2009 (H.R. 3200), the
law would have devastating effects. According to the Lewin Group, a
highly respected health care policy and management consulting firm,
by the law's third year:

Forty-eight percent of privately insured Americans would
transition out of private insurance. Out of an estimated 172.5
million people with private health insurance, there would be a
decline of 83.4 million people.

Fifty-six percent of Americans with employer-based coverage
would lose their current insurance. Of the estimated 158.1 million
Americans with employer-based coverage, 88.1 million people would
be shifted out of their current employer-based plan.

An estimated 34 percent of the uninsured in America would still
lack coverage. Of about 49.1 million people without health
insurance, the legislation would only reduce the uninsured by 32.6
million people, leaving 16.5 million people without coverage.

The bill would also harm doctors and hospitals. Lewin found
that:

Physicians would see their payment levels decline by $31.7
billion. While physician net income may increase under the bill
primarily due to other Medicare changes, a public plan with
Medicare-based payments would lower reimbursements. Today, Medicare
physician payments are, on average, 81 percent of private
payments.

Hospitals could see their net annual income fall by $61.9
billion, which roughly eliminates hospital total margins. This
significant loss in hospital income is also overwhelmingly
attributable to the public plan using Medicare-based payments.
Today, Medicare hospital payments are, on average, 68 percent of
private payments.

So while President Obama has repeatedly promised that Americans
who are happy with their private health plans won't have to change
a thing, the incentives built into his approach suggest
otherwise.

But there are alternatives that don't involve a
bureaucrat-centered, Washington-knows-best approach. Some in
Congress are proposing reforms that would give consumers and state
officials more decision-making power.

This would include giving a generous tax break to every working
American enrolled in a private health-insurance plan, regardless of
where they work. This would make health insurance more affordable,
and it would allow folks to own their health policy (like auto- or
life-insurance policies) and take it from job to job without a tax
or regulatory penalty. People shouldn't lose health insurance
merely because they change jobs.

Sound legislation would also give state legislatures flexibility
in using existing federal subsidies to expand health coverage or
undertake far-reaching reforms of the state's health insurance
markets. The objective: to ensure that anyone, even those with
pre-existing conditions, could get access to affordable health
plans. Ideally, reforms could ensure they keep their coverage even
if they become unemployed or change jobs.

Every state is different. The structure of the economy, the
demographics and the health insurance markets vary from one place
to the next. Federal lawmakers should offer state officials waivers
from existing law and regulation, and also technical assistance, to
enable each state to create a health care solution tailored to its
unique needs.

And they should shelve the public option that the public is,
rightly, up in arms about.